Government settlement: Pay taxes back to utility

Area governments soon will have to refund nearly $3.4 million in taxes to Consumers Energy due to the plunging value of its J.R. Whiting power plant, and the City of Luna Pier will take the biggest hit.

Taxing units were given a 90-day period to refund part of the taxes collected from the utility since 2010 and, going forward, will get a fraction of the revenue they got from the plant in the past.

Luna Pier will have to refund about $723,000 and will see its total tax revenue for the coming fiscal year drop by about $256,000, or about a third, reported Charles Londo, Luna Pier city administrator. The Whiting plant has been the city’s largest taxpayer for more than 60 years, most recently representing about 70 percent of its total tax base.

“What we’ve got to do is look at every item of cost here and figure out what’s important and what isn’t,” Mr. Londo said. “Everything is open for discussion here at this point.”

The decline stems from negotiations the city has been having with the utility, which plans to shut down the Whiting plant by April, 2015.

Disagreements over the plant’s property value went to the Michigan Tax Tribunal and were scheduled for trial next week, but both parties agreed to compromise.

“It got to point where we either go to the tribunal and have a trial or resolve it amicably,” Mr. Londo said. “It would have cost us a couple hundred thousand dollars just to try the thing.”

In the settlement, the utility agreed to take partial refunds and not charge interest to the governments in recognition of the financial impact it would have on them in return for an agreed schedule of declining property value for the plant in the years ahead.

Essentially, the plant’s property value will slide to $15 million by 2016, down from $123 million in 2010, meaning the city tax taken from the plant will drop from about $607,000 to $73,000.

Mr. Londo said the city is looking at all costs while it frames a budget for the new fiscal year starting July 1.

The cost it pays for lighting, gas for city vehicles, insurance coverage and other expenses are being examined. Public safety — the police department — and public works represent the two largest budgeted items, consuming about $750,000.

The city is at its maximum tax levy, so that’s not an option.

“There are going to have to be other things that have to change — maybe people will be charged for things they hadn’t been charged for before,” Mr. Londo said. “There’s no wriggle room for tax increases.”

Indeed, the city probably will have to take out a loan to refund the initial $723,000, he said.

“We are going to have to do a borrowing and then try to extend its term over as long a period of time as we can to continue to operate and maintain services,” Mr. Londo said.

David Drewyor, superintendent of Mason Consolidated Schools, said the district will take a $1.2 million hit, but the state will reimburse the district.

“Even though we lost $1.2 million because of Consumers in property taxes, we’re going to get that same amount back from the state. In essence, we’re not going to lose anything.”

But the district already had been grappling with its finances and less tax revenue in future years won’t help.

The County of Monroe will have to refund $336,028. County Administrator Michael Bosanac said the amount will be paid from funds on hand.

Mr. Londo said none of the other taxing units joined in the tax case, leaving Luna Pier to contest it alone.

“The city couldn’t afford to challenge legally what Consumers’ resources are, so we had to bite the bullet and cut our losses the best we can,” he said.

“We’re certainly mindful of the impact on area communities as a result of the scheduled mothballing of Whiting,” said Dan Bishop, a Consumers spokesman, who noted that the company will work with them on community transition plans.

Dennis Marvin, the utility’s communications director for new generation, said the utility will study environmental issues at the plant to help determine if there are feasible future uses.

“Those studies will be starting here fairly soon and we won’t understand how we could potentially repurpose those sites until those environmental studies are complete,” he said.

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